Finding Flat-Fee Financial Advisors

For many years a portion of our portfolio has been managed by a financial advisor whose fee was based on a percent of assets under management (AUM). He taught me a lot about investing, to understand what’s a signal and what’s noise, introduced me to investment ideas and asset allocation, tax loss harvesting, Roth conversions, etc. As I gained knowledge, experience and confidence, I built up to managing over 50% of our portfolio. We think a lot alike, both leaning toward value investing and are firm believers in diversification. My advisor was always available to discuss questions and provide advice if asked even on the portion of funds I oversaw. When he did end-of-year reviews he would include my portion for an overall analysis and assessment. I read extensively about investing and behavioral finance, leaning toward a Bogle Head type investor. A few years ago, after reading Charlie Ellis’ book “Figuring it Out”, I thought about the fee structure based on a percent of AUM. As Ellis mentions, if a portfolio returns 7% for the year and the advisor’s fee is 1% of AUM, that’s 15% of your profit going to the advisor. This fee structure was unrelated to the level of interaction. There was redundancy between what I and my advisor did. I had complete oversite of our portfolio using Quicken and our online brokerage accounts. I used TurboTax to file our taxes. I tracked our portfolio performance, asset allocation and reviewed our realized and unrealized capital gains for opportunities for tax loss harvesting. My advisor enlightened me about Roth conversions where we would coordinate and each handled the respective funds we managed. I decided I could handle all the transactions. I am a fairly disciplined investor and don’t need hand-holding during market turbulence.

What I needed at this point was for my advisor to act as a consultant and provide a second opinion in evaluating our asset allocation and portfolio risk and in making informed financial decisions. This included periodic review of our total investment portfolio using financial tools he has access to such as Blackrock Portfolio Summary and Scenario Tester. He and his team would then offer suggestions and recommendations within our risk tolerance profile and future goals. I’d get the benefit of some really smart financial professionals within his firm providing guidance. In addition, I want him to perform future value analysis to support various financial decisions such as when to take social security, and offer candid feedback even if it challenges my current strategy.

I drafted an agreement of roles and responsibilities and we negotiated a yearly fixed rate. His firm doesn’t provide fee-for-service. Another benefit from this arrangement is I get the reduced fee structures (institutional rate) for various investments his firm has negotiated.